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BUSINESS activity in the euro zone expanded their activity at the fastest rate in 15 years in June as more easing of coronavirus restrictions revived the bloc’s dominant services industry, a survey showed Monday.
But the growth spurt has come at the cost of mounting inflationary pressures due to labor shortages and supply chain disruptions caused by the pandemic.
IHS Markit’s final composite Purchasing Managers’ Index (PMI), which is seen as a gauge of the health of the economy, jumped to 59.5 last month from 57.1 in May, the highest level since June 2006. The figure was ahead of forecasts of 59.2. and well above the 50 that separates growth from contraction.
“The index is at a 15-year high, confirming that the bloc’s economic recovery is well underway. At the same time, backlogs (accumulation of things, especially unfinished work or things that need to be addressed) and producer price pressures are showing no sign of abating,” said Mateusz Urban of Oxford Economics.
“The services PMI sub-index recorded an increase. This suggests that the sector has benefited from the easing of restrictions and increased consumer optimism on the back of a forward vaccination campaign.”
The acceleration of vaccination programs on the continent means the government has allowed more service industries to reopen and the sector’s PMI jumped to its highest reading since July 2007.
Activity in Germany’s service industry grew in June at the fastest pace since March 2011 while in France, the sector expanded rapidly following the easing of COVID-19 restrictions.
Meanwhile, in the UK – outside the euro zone and the European Union – the post-lockdown revival for service firms eased slightly in June but price pressures spiked the most.
World stocks were near record highs on Monday (7/5) as concerns about the Delta variant of COVID-19 offset positive sentiment from surging eurozone business activity.
PMI data covering euro zone producers, released last week, showed factory activity expanded at the fastest pace in June but they faced the steepest rise in raw material costs in more than two decades.
Inflationary pressures were also felt by the service industry and the composite price index soared to its highest level in nearly 21 years.
Although inflation risks are likely to increase, the European Central Bank is expected to maintain loose monetary policy and see expectations of higher inflation for a while before acting, a Reuters poll found last month.
With demand soaring, and amid hopes of further easing of restrictions leading to a more normal way of life, optimism about the coming year is growing. The service business expectations index rose to 72.7 from 71.2, the highest since August 2000.
Investor morale in the euro zone rose for a fifth straight month in July, the highest level since February 2018, lifted by the reopening of restaurants and retailers as well as tourism as coronavirus cases fell, another survey showed Monday. [antaranews]
